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08/11/2013

Poverty and Near-Poverty in the United States--Posner

Two recent articles—Hope Yen, “80 Percent of U.S. Adults Face Near Poverty, Unemployment: Survey,” July 2, 2013, www.huffingtonpost.com/2013/07/28/poverty-unemployment-rates_n_3666594.html, and Ron Nixon, “House Plan on Food Stamps Would Cut 5 Million From Program,” NY Times, July 31, 2013www.nytimes.com/2013/07/31/us/politics/house-plan-on-food-stamps-would-cut-5-million-from-program.html?_r=013----invite attention to the problem of poverty in the United States today.

Yen’s article points out that while “only” 15 percent of American households have annual incomes below the poverty line (actually the figure is 16 percent)—$23,000 for a family of four—a much larger number can expect to be poor at some time during their lives; many fear sinking into poverty; and many people above the poverty level struggle to make ends meet.

I believe the poverty line is a useless statistic. For one thing it omits government benefits such as food stamps, social security retirement and disability benefits, Medicare, and Medicaid, along with private charity. For another, “poverty” is not well defined. And for another, the notion of a “line” that separates poverty from non-poverty is ridiculous. If $23,000 is the line for a family of four, does that mean that a family of four with an income of $23,500 is not poor?

A very small percentage of Americans is actually destitute; but a very large percentage do not have a sufficient income to be comfortable. In fact I am guessing that half the population is in that fix. The median household income in the United States is only $50,000. That is, half the households have less. These households have very little in the way of savings, often cannot afford to live in school districts that have good schools, and cannot afford health insurance (for which Medicaid is a poor substitute). Because of their meager savings, they are highly subject to economic vicissitudes, and are often dependent on usurious loans and often on—or over—the brink of bankruptcy. Partly as a consequence and partly as a cause of low income, they often are in poor health. They cannot pay for their children’s college tuition; the children must go deeply into debt to attend college.

The number of Americans in households with income below the median must be close to 150 million (the exact number would depend on the average number of persons per household having less than the median household income). Obviously the significance of the number depends on the median income. But that income is modest, an important fact that has to be assessed. One question that needs to be examined is the cause; another is the effect; and a third is what if anything could be done to raise the median income significantly.

I accept that the main cause of economic inequality in the United States, and thus of poverty and near poverty, is that the United States uses a more or less free market to allocate resources, and hence household income is mainly the result of the demand for and supply of labor. In recent decades, rapid advances in technology have increased the demand for highly educated, high IQ persons and (along with increased imports of manufactured goods from low-wage countries) reduced the demand for persons who do manual labor, notably in factories, or more generally for persons whose jobs can be done more cheaply by machines. At the top of the income distribution, the growth of global markets, notably in finance, has enabled successful entrepreneurs and investors to obtain unprecedently large profits. Low tax rates have been a factor as well.

There is nothing, or very little, that is sinister or pernicious in the growth of inequality of income and wealth under pressure of market forces. But the consequences are not altogether desirable. They include reduced upward mobility (upward mobility has declined in the United States and is now below that in most European and English-speaking countries; see Vasia Panousi et al., “Rising Inequality,” Brookings, March 13, 2013, www.brookings.edu/~/media/Projects/BPEA/Spring%202013/2013a_panousi.pdf; Scott Winship, “Mobility Impaired,” National Review Online, Nov. 14, 2011, http://www.nationalreview.com/articles/282292/mobility-impaired-scott-winship), as the wealthy use their wealth to assure the prosperity of their children and grandchildren, in part by buying the best education for them; greater distance between the income classes, so that the wealthy have diminished contact with lower-income people (some of Mitt Romney’s comments during the 2008 Presidential election campaign suggested little familiarity with the lives and problems of lower-income people); and increased dependence of politicians on campaign donations by wealthy companies and individuals.

Americans seem singularly lacking in envy, and to be uniquely imbued with a culture of self-reliance, and as a result the growing inequality of income does not portend political instability. But it seems wasteful. Those 150 million or so members of households that have incomes below the median includea very large actual and potential labor force that is not being utilized very productively. People who are poorly educated, unhealthy, brought up in broken families, exploited by unscrupulous sellers of goods and services, preoccupied with making ends meet, unable to afford labor-saving devices, in and out of bankruptcy, and constantly worrying about the household budget are unlikely to be productive workers; and the entire society suffers. They are also unlikely to be competent participants in the political process, as voters, because they lack both the leisure and the education to become even minimally informed about public matters.

But what is to be done? Some conservatives believe that the social safety net—the food stamps, Medicaid, etc.—should be removed (see, for example, Ron Nixon’s article that I cited at the beginning of this post) in order to increase the incentives of the poor to work hard and improve themselves, andthat the near poor, ineligible for the safety net, should simply be left to struggle. Neither seems a realistic suggestion for improving the productivity and political sophistication of either group.

More promising I think would be a large investment in early childhood education and nutrition, a shift in medical resources from the diseases of old people to the medical needs of children and pregnant women, a substantial expansion in Medicaid, and a modest expansion in public work projects involving services. A restructuring of the federal tax code and a modest increase in income tax rates in the higher brackets could finance such programs.

Comments

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The drawing of lines doesn't strike me as making the entire exercise meaningless. There's pretty good data on happiness and income: the point of diminishing returns imho seems as good a start for line drawing as any. This is a different metric of course.

very much agree with your prescriptions though. The internet means those fortunate enough to be born with a big brain can take care of themselves. An extreme distribution skew I think is destabilizing but agree as well that us americans tend to see ourselves as temporarily not rich millionaires which mitigates against this.

This is Judge Posner's most persuasive post in many weeks. While I would enthusiastically vote for all of the recommendations he offers in the tiny concluding paragraph, I am even more pessimistic than he about their effects.

What is desperately needed is a social economy founded upon a great diversity of crafts and practices which all contribute in some small way to the common good. Mastery of each craft should be open to different levels of talent, but would require a life-time of effort to master. The effort to master them would give meaning to one's life, an acceptable standard of living, and require the exercise of qualities of character that nearly all would acknowledge to be virtues.

Yet how do we move to such a society from one founded upon technologies which "creatively destroy" each other every two or three years? This is a problem that has been recognized at least since Marx, but no one can solve. Only crackpots and tyrants have even made the attempt.

You recommend a "large investment in early childhood education and nutrition, a shift in medical resources from the diseases of old people to the medical needs of children and pregnant women, a substantial expansion in Medicaid, and a modest expansion in public work projects involving services."

You've got to be kidding. Being lifelong single and childfree and lifelong paying through the nose for the miseducation of Amerika's youth, the last thing I will stand for is being assessed to support even more of the idiotic, world-contaminating breeding.

Please explain why you think those who do not favor breeding and who have other, equally valid interests, should be hit up to pay for the matrimania and breeding? Do breeders pay for my Porsches or my travel? Are you privy to some document, like the Bible or the Constitution, that requires non-breeders to support the breeders?

So it has come to this. We will not drown our children in the Tiber, as the Romans did, we will merely discourage childbirth by depriving children of early childhood education and nutrition, so that they may grow up to be social misfits and criminals. This will allow greater scope for "equally valid interests," such as buying Porsches and travel.

I have never thought of myself as a Roman Catholic, but maybe they have a point.

Given your accurate diagnosis, I'm surprised that your prescription doesn't include reduced immigration, which drives down the cost of labor. There's increasing evidence that the poor have all the access to health care they need, with or without insurance (http://www.thedailybeast.com/articles/2013/05/01/shocker-oregon-health-study-shows-no-significant-health-impacts-from-joining-medicaid.html) so no real point to expanding Medicaid. I don't know if you remember the fuss about "shovel ready" public works projects that were supposed to provide jobs in 2008-2010, but they didn't go so well.

What do we need? 1) A lot less immigration. 2) Less regulation for new businesses, less government intervention in general (of course, that would lead to more government layoffs, alas) 3) A more realistic education system that doesn't leave half the population lost from 6th grade on. We could do a lot better job education people with eighth grade reading and writing skills and stopped pretending they could all get to college. 4) Give poor young children incentives to cost less money--stipends that encourage kids to go to school, not have kids, and so on. 5) Charge immigrants (legal and illegal) for public schools--despite the complaints, both Asians and Hispanics consider our K-12 system a big draw. 6) Take a serious look at what industries we could keep here to provide more work for the lower 50%. Because what we do now isn't going to work.

First, US manufacturing did not decline because of cheap imports from low-wage countries. Rich, high-wage countries like Germany and Japan have managed to maintain a large and internationally successful manufacturing sector. Manufacturing in the US *mainly* declined, because of a short-sighted focus on short-term shareholder value. In the end, US manufacturers like GM did not invest nearly enough in basic research, new products, their plants and their labor force to remain internationally competitive. (Companies like Intel, which didn't follow this trend are still doing fine).

Second, we are not entering an age of Asimovian Robotic society. Yes, robots have replaced a lot of low-skill labor, but there is still a lot of high skill labor in robotic production. Manufacturing robots have to be installed, operated, and maintained by humans. As a matter of fact, maintenance of manufacturing robots is a huge service industry, which the US no longer plays a role in. Most maintenance technicians are flown in from Europe and Asia where these machines are made, just like high-end construction workers (!!!) are hired to do skilled labor in the US that very few Americans can do.

Part of the malaise you describe is that there is no decent vocational and technical training in the US, which is why foreign companies operating in the US are sometimes forced to set up technical colleges to train staff they can't find on the American labor market. Sadly, the focus on liberal arts education in the US (which is in many cases only as good as what high school education used to be not so long ago) has completely eroded non-college job training.

That said, most jobs in the US can't be outsourced and the ugly truth is that Americans in general are very badly paid, which, given the lack of a decent security net, leads to the conditions you describe.

In a nutshell, half of the US population has not fallen victim to the forces of technological change and global capitalism, but to very bad policy and regulatory decisions here in the US. This could be fixable, but the current disinterest in technocratic and problem-oriented government makes fixes very unlikely.

The Poor and the downtrodden have always been with us. The Poor and the downtrodden will always be with us. The solution, "Why let them eat Cake!". Perennial Social and Politco-Economic upheavels resulting in Revolutions, Civil Wars and Coup de Etats are the Free Market forces resulting in the leveling of such inequalities. Perhaps Jefferson was right, "Every generation or two needs it's own Revolution"...

Could France or others have broken it's subjegation and bondage without the "Reign of Terror"?

The American Dream is indeed a powerful motivator. The idea that a well educated public that is at the same time aware of their stature and their desires in society is a great start. However, while the market demands "highly educated, high IQ persons", the analogy extends to so called "market exposure": those who are above the median starting line to begin with usually start with much greater exposure tho those in key positions and other highly educated, high IQ persons. If Judge Posner's viewpoint truly is a bit Rawlsian in nature (and I may just be misinterpreting his remarks), than even a great, solid childhood education coupled with medical benefits and a shift in the tax code is not enough. Being blind to exposure requires a fundamental change in the way society perceives itself. What that change is exactly is up for debate.

I don't think the key is to spend more on education. We do need to be a lot better at spending it wisely. It's absurd that what we invest in a child's education depends so much on what zip code the child lives in. Of course if we were spending less on pensions for people retiring in their mid 50's, we would have a lot more resources for education.